new product introduction in the consumer goods...

Supply Chain Management Journal

Issue 2/2010 77

New Product Introduction in the Consumer Goods Industry. A Project Management Vision

Corina DINCĂ Virgil POPA

Valahia University of Târgovişte Abstract

Business and technology opportunities are explicitly considered so that resources will be allocated to new areas of market growth, operating effectiveness, and efficiency. A typical analysis for a large-scale opportunity would include: Strategic framing; Market segment assessment; Competitor analysis; Customer assessment. The element of idea generation and enrichment concerns the birth, development, and maturation of a concrete idea. Most idea selection involves an iterative series of activities that are likely to include multiple passes through opportunity identification, opportunity analysis, and idea generation and enrichment, often with new insights from the influencing factors and new directives from the engine.

Concept definition is the final element of the new concept development model. The process includes the integration of traditional new product introduction (product innovation, design and collaboration) with sourcing and procurement, supply chain planning and execution, and service - the entire product lifecycle. The evolution of an industry is determined in part by the product launch decisions firms make. Firms must make two key decisions regarding new product launch: whether to enter a market with a new product and when to launch that product. Successfully managing new product introductions necessitates the use of a proven and common approach. The failure rate for new products is high and the group believes that improved information sharing would reduce this failure rate substantially for the benefit of all parties. The new product development and introduction scenario covers an end-to-end process that involves the entire value chain.

Key Words: New Concept Development, New Concept Development, New Product Introduction, category value, Process Management Project, Work Breakdown Structure, Benchmarking

Introduction

Successful innovation Successful innovation has become a key driver for revenue growth, competitive margins and, in some cases, even survival. The ability to bring this innovation to market quickly, efficiently and ahead of competition is becoming increasingly important. An efficient product launch requires integration and coordination among multiple functional areas, including product design, procurement, planning, manufacturing/process and sales and marketing. In addition, as organizations increasingly leverage core capabilities of other companies, innovation has to be delivered through virtual networks, working with partners in a collaborative environment to bring product and services to market faster, smarter and cheaper (Markides, 2008). Consequently, organizations now not only need to integrate internally, but also externally with suppliers and customers, creating end-to-end supply chain processes and capabilities which differentiate on product and customer requirements (Crawford, 2008).

Voice of Customer (VoC) Research to Uncover New Opportunities Your customer probably has your next new product idea! Building in VoC work into your, new discovery stage helps to identify customer's problems, unmet needs and even unarticulated needs. There is no standard methodology here, but the research usually involves working closely with the customer, listening to their problems, and understanding their business or operation and its workflow. Big ideas are solutions to solve big problems. Thus one way to begin is by focusing on your customer's problems. When interviewing your customers, don't merely ask them to indicate what new products or new features, functionality and performance they want - you usually get the obvious answers. Customers are invariably constrained by their inability to think beyond current experience and practice (Schmidt, Regina, 2006) Companies need a well-structured, modular approach, so that they could combine rapid selection and decision-making with the ability to overcome internal barriers and preparedness to cooperate with value-added external parties and finally a proactive attitude in dealing with the competition’s response.

© Profesor Virgil POPA Ph. D.


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One key objective for demand forecasting is not to predict the future. “It is better to forecast “approximately correct” than “exactly wrong”.

New Concept Development Model The NCD model consists of three key parts: The engine or bull’s-eye portion is the leadership, culture, and business strategy of the organization that drives the five key elements that are controllable by the corporation. The inner spoke area defines the five controllable activity elements (opportunity identification, opportunity analysis, idea generation and enrichment, idea selection, and concept definition) of the FFE.

The influencing factors consist of organizational capabilities, the outside world and the enabling sciences that may be involved. These influencing factors are relatively uncontrollable by the corporation. The inner parts of the NCD are called elements, as opposed to processes. A process implies a structure that may not be applicable and could force the use of a set of poorly designed controls to manage FFE activities. In addition, the model has a circular shape, to suggest that ideas are expected to flow, circulate, and iterate between and among all five elements (Koen).

Figure 1. The new concept development (NCD) construct is a relationship model, not a linear process

The New Concept Development (NCD) construct is a relationship model, not linear process.

Influencing Factors The factors are: the corporation’s organizational capabilities, customer and competitor influences, the outside world’s influences, and the depth and strength of enabling sciences and technology. Sustained successful product development can occur only when FFE activities can be accomplished with the company’s organizational capabilities. Organizational capabilities determine whether and how opportunities are identified and analyzed, how ideas are selected and generated, and how concepts and technologies are developed. Organizational capabilities can also include organized or structured efforts in acquiring external technology. Enabling science and technology is also critical, since technology typically advances by building upon earlier achievements. “Enabling” is not the same as “mature”, which is defined on a technology trend line or penetration curve. It is the point

when the technology is development enough to build it into a manufactured product or regular service offering. Enabling technologies usually provide some degree of enhanced utility, cost avoidance, value, or quality improvement for the customer. The outside world, government policy, environment regulations, laws concerning patents, and socioeconomic trends all affect the FFE as well as the new product development or Stage-Gate part of the innovation process. Some of these factors are indicated in Porter’s “five force” model (Koen).

The Engine (Leadership, Culture, and Business Strategy) Leaders demonstrate in every decision and action that innovation is important to their company. Encouraging purposeful evolution and encouraging employees to try new things generating customer intimacy by encouraging their employees to interact closely with customers. Engaging the whole organization in understanding that innovation is the



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fundamental way that the company brings value to its customers. Continuing to value the individual and set an environment that is conductive to high motivation. Telling powerful stories that reinforce the principles and practices of innovation.

Opportunity Identification Business and technology opportunities are explicitly considered so that resources will be allocated to new areas of market growth, operating effectiveness, and efficiency. This element is typically driven by the business goals. For example, the opportunity may be a near-term response to a competitive threat, a “breakthrough” possibility for capturing competitive advantage, or a means to simplify operations, speed them up, or reduce their cost. It could be an entirely new direction for the business or an upgrade to an existing product. It could also be a new product platform, a new manufacturing process, a new service offering, or a new marketing or sales approach. Overall opportunity identification defines the market or technology arena the company may want to participate in. Opportunity identification in many cases precedes idea generation and enrichment. It also may enable linking unanticipated notions to business or marketplace needs that were not previously known.

Opportunity Analysis Business capability and competency are assessed in this element, and sponsorship for further work will be determined. However, despite all the effort, significant technology and market uncertainly will remain. A typical analysis for a large-scale opportunity would include: Strategic framing; Market segment assessment; Competitor analysis; Customer assessment.

Idea Generation and Enrichment The element of idea generation and enrichment concerns the birth, development, and maturation of a concrete idea. An idea may go through many iterations and changes as it is examined, studied, discussed, and development in conjunction with other elements of the NCD model. Direct contact with customers and users and linkages with other cross-functional teams as well as collaboration with other companies and institutions often enhance this activity. Idea generation and enrichment may be a formal process, including brain-storming sessions and idea banks so as to provoke the organization into generating new or modified ideas for the identified opportunity. A new idea may also emerge outside the bounds of any formal

process – such as an experiment. Idea generation and enrichment may feed opportunity identification, demonstrating that the NCD elements often proceed in a nonlinear fashion, advancing and nurturing ideas wherever they occur.

Idea Selection Even when businesses are being downsized, there is no shortage of new ideas. The problem for most businesses is in selecting which ideas to pursue in order to achieve the most business value. Making a good selection is critical to the future health and success of the business. However, there is no single process that will guarantee a good selection. Most idea selection involves an iterative series of activities that are likely to include multiple passes through opportunity identification, opportunity analysis, and idea generation and enrichment, often with new insights from the influencing factors and new directives from the engine.

Selection may be as simple as an individual’s choice among many self-generated options, as formalized as a prescribe portfolio management method, or as complex as a multistage business process. Financial analyses and estimates of future income for ideas at this early stage are often wild guesses. Idea selection is expected to be less rigorous in FFE than in the NPD portion, since many ideas must be allowed to grow and advance.

Concept Definition Concept definition is the final element

of the new concept development model. This element provides the only exit to the NPD or technology stage gate (TSG). In order to pass through the gate, the innovator must make a compelling case for investment in the business or technology proposition. Some organizations refer to this as a “win statement”. Other calls it a “gate document”. The investment case consists of both qualitative and quantitative information, which the gatekeepers use to make a determination. Most companies specify guidelines for gatekeepers, who to make decisions at the outset of the development process. These may address: - Fit of the concept with corporate and/or divisional strategies; - Size of opportunity, such as financial impact; - Market of customers needs and benefits; - A business plan that specifies a specific win/win value proposition for value chain participants; - Commercial and technical risk factors; - Environmental, health, and safety “showstoppers”.

The process includes the integration of traditional new product introduction (product



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innovation, design and collaboration) with sourcing and procurement, supply chain planning and execution, and service - the entire product lifecycle. The importance of being first to market is discussed extensively in various sources. Other measurable benefits: • Increased sales through longer sales life.

The earlier the product reaches the market, relative to the competition, the longer its life can be;

• Increased margins. The more innovative theproduct the longer consumers will pay a premium purchase price;

• Increased product loyalty. Getting the firstopportunity. To attract customers, especially early adopters, offers an advantage in terms of customer loyalty; customers will most likely upgrade, customize or purchase companion products;

• More resale opportunities. For components,commodities or products that other companies can private-label, being first to market can often help ensure sales in other channels;

• Greater market responsiveness. The fastercompanies can bring products to the market that satisfy new or changing customer needs, the greater the opportunity to capitalize on those products for margin lift and to increase brand recognition;

• A sustained leadership position - Unlike bestselling fastest or other superlative market positions, first is the market position a competitor cannot take away. Managers in these well-organized

companies are able to assess the potential of each innovation during the entire creation process. Three trends can be identified when we look at the historic development of applying a specific process for managing innovation in companies to date. Years ago, many companies in the fast moving consumer goods industry did not use a standard international innovation process. This led to heterogenic decision-making criteria. In the course of time, companies identified problems with this innovation management and changed course, by making greater use of highly sophisticated and detailed innovation processes. Today a structured innovation process defined in detail in the following section-is used which combines management based on clear decision points with the freedom for openness within the process. This structured innovation process ensures speed-which is critical for success in this sector-by using parallel work streams.

Developed, collect and screen ideas To prepare for the innovation’s launch, above-the-line (ATL) and below-the-line (BTL) media need to be developed. Regardless of all the

work that has gone on beforehand, this is the moment when the consumer sees the product for the first time either on store shelves or in an advertising campaign The evolution of an industry is determined in part by the product launch decisions firms make. Firms must make two key decisions regarding new product launch: whether to enter a market with a new product and when to launch that product. On both of these questions, the theory and evidence are mixed on what drives these decisions. An extensive theoretical literature on the relationship between market structure and innovation contends that incumbent firms often face different incentives for innovation than do de novo entrants. We address 3 questions: First, which submarkets do dominant firms avoid, but fringe firms enter? Second, are dominant firms the first movers in the submarkets they choose to enter? Does the presence of a dominant firm reduce the rate of subsequent entry or increase the likelihood of a fringe firm's failure in a submarket? Indeed, in answering this last question, we consider the full cycle of the entry process: which firms enter, when they enter, and what happens after they enter. Thus, we are able to use fine-grained measures of multi-dimensional performance to explore the consequences of entry by dominant firms on prices and market structure.

Profitable New Product Introduction (NPI) The known trends in the food industry are: consumer interest in convenient, fresh and healthy products; dominance of retailers in the value chain and - subsequently - retailers strongly; promoting and expanding private label lines; this power play results in price pressures and eroding margins for branded goods suppliers; growing importance of out-of-home distribution channels; shorter product life cycles and increasing number of new product introductions (Kurt Salmon Associates, 1993). New product introductions can generally be put into one of these categories: - a product produced before, but undergoing a modification; - a product not previously produced by the company, but a similar product exists in the market; - An existing product presented to a new market; - A totally new product to a new marketplace.

Participant’s knowledge, network planning & forecasting in the food and FMCG industry Although a relatively low quantity of all NPIs are related to totally new products this



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category has most impact on the product development processes themselves, to related project management and on the amount of money involved. Furthermore, the risk and hence failure rate is also much higher. For every seven new product ideas, only four make it to development and then only one is introduced (Robert G. - Cooper, 2001). After introduction, about 60 per cent of totally new products launched are actually a success and only a very small percentage is still on the shelves after three years. To increase the success rate many food manufacturers have transformed over the years from being technically driven developers towards more market and consumer oriented innovators. Investigations show that companies which are considered as real innovators achieve a considerable percentage of their turnover coming from new products, especially in the PMCG industry. Also, these companies show that their revenue share of new products compared to R&D cost as a percentage of revenues is much higher than the global average. Increasing competition Retailers and discounters are fighting for a piece of the consumers' pie and use their scarce shelf space and private labels as a 'weapon'. The manufacturers are fighting for their spot or the shelf and are trying to get awareness from the retailers and, even more important, from the end consumer. By introducing innovative and exclusive new products, manufacturers try, in close competition with private label manufacturers who sometimes start their own innovations even faster than A-brands manufacturer, to create the best proposition. Achieve profitable growth Big retailers in particular have used their buying power in recent years to demand lower prices from the A-brand manufacturers who were forced into all kinds of (price) promotions to retain or even regain their shelf positions. In their turn, manufacturers used their buying power towards their ingredient and packaging suppliers to regain part of the lost margins. However, the decreasing profit margins throughout the whole value chain resulted in cost-cutting actions and in reconsidering strategies about new product introductions. Changing demand. In the consumer market the strong move towards convenient, fresh, and healthy products clearly accelerates the introduction of new products. Also, the ingredient and packaging manufacturers experience the need for innovative solutions to accommodate these new products. Increasing pressure on cost price

As already mentioned, the vigorous competition between A-brands and the increased importance of private labels negatively influenced the profit margins in the whole Value Chain. the price of private label brands is, on average, a third lower than manufacturer brands. Especially existing products with many comparable alternatives from competitors are subject to strong price pressure. The A-brand manufacturers have to come up with better and cost-efficient ways such as using other, cheaper ingredients or other package sizes.

New Product Introduction: the challenges The demand uncertainty of new product introductions presents new challenging aspects in managing time-to-market and time-to- volume but is at the same time critical for the bottom line result of a new product introduction. Aspects such as pipeline filling, phasing-in and phasing-out and up scaling of production capacity have to be handled well to make sure the competitive advantage of a new product introduction is not lost quickly. Master data has to be available, ERP systems should be set up, and planning of new products should be integrated within existing S&OP processes. The ability of private label manufacturers in particular to quickly copy and introduce similar new A-brand products also puts pressure on the organization of an NPI process. Manufacturers have to adapt quickly and act as agilely as possible to upscale the production capacity at short notice. Due to the shortening product life cycles, the payback time for new product introductions should be very short. Forecasting of these new products is therefore very important and embedding new products in regular sales & operations planning (S&OP) processes is essential (Ernst & Young, AC Nielsen, 1999).

Managing The NPI Forecasting & Planning Process: Current Practices Innovation funnel approach Successfully managing new product introductions necessitates the use of a proven and common approach. Most companies have adopted the innovation funnel, also known as the stage-gate"' method introduced by Robert G. Cooper.

By defining different stages in the development process, the funnel is a tool that can be used as an effective blueprint for managing the entire new product process, from the initial idea to the launch of a product. Each stage consists of a set of cross-functional and parallel activities which must be successfully completed prior to obtaining management approval to proceed to the next stage.



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The entrance to each stage is called a gate. Gates should have a common format in which deliverables, criteria, and output are clearly defined. Gates control the process and serve as: quality control points, readiness-checks, must-meet criteria and should-meet criteria; formal go/no-go decision moments; marker for action; plans and decisions for the next stage. At the gates, decisions taken are closely related to planning & forecasting processes. Therefore the funnel needs to be extended with a formal evaluation stage.

NPI forecasting & planning In each stage of the funnel, critical decisions like "how do we allocate recourses throughout the funnel" or "should we produce in a new supply chain" have to be taken and need to be addressed in time. Examples of such decisions are depicted in the funnel in Figure 2. In each stage of the funnel, critical decisions like "how do we allocate recourses throughout the funnel" or "should we produce in a new

supply chain" have to be taken and need to be addressed in time (Figure 1). The planning and forecasting process must be arranged in such a way that relevant information can be shared rapidly, efficiently and transparently within the organization. Based on the model for a responsive forecasting and planning process (Vriens, Versteijnen, 2006) the following section describes current practices in NPI forecasting and planning related to the aspects of transparency, efficiency, and speed. The following key areas in NPI forecasting and planning will be discussed: - Internal and external NPI collaboration; - Involvement of supply chain management; - NPI supporting tools; - NPI supporting key performance indicators.

Figure 2. Stage gate decision

Source: Vriens, Versteijnen, 2006

Internal and external NPI collaboration Looking closer at the organization

around new product introductions, a cross-functional product introductions, a cross-functional approach involving the most important business functions has proven to be the most effective (Vriens, Versteijnen, 2006).

To describe the different stages of collaboration (internally as well as externally) the model of maturity stages in Figure 2 is used, indicating how far innovation is incorporated in the organizational framework. To ensure that the appropriate departments

within the company are involved in the process, you should involve all relevant functional areas. These teams are often responsible on a project basis for all aspects of the project, from initial idea generation to final commercialization, usually reporting to higher management. Companies cannot afford mistakes in innovation and introduction of new products to the market. Not only is the innovation itself important but adequately managing the process leading to - eventually - a successful launch is also crucial.

Prospecting Confirm opportunity

Transfer to factory and sell-in to customers

Produce improved products and distribute to customers

Lessons learned future roll outs

Evaluate opportunity

Idea Feasibility Capability Implementation Launch Evaluation

Allocate develop-

ment resources

Invest in Supply Chain

How to produce

and launch

Detailed launch plan

Continue Product? What can be learned form NPIs

Follow –up

replenish-ments

GO/ NOT GO

GO/ NOT GO

GO/ NOT GO

GO/ NOT GO

GO/ NOT GO



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Figure 3. Maturity stages

Source: Vriens, Versteijnen, 2006

Involvement of supply chain management According to the following five topics

need dedicated focus of supply chain management co make new product introduction a success. Production capacity Anticipating is essential in this aspect. A good contingency plan should be available to overcome any hurdle. Abilities to outsource production before investing in expensive production capacity will help. Other aspects, like the effects of the channel loading plan of a new product on specific One capacity, the 'make-ability' of new products in the existing infrastructure, up scaling capacity (time-to- market and time-to-volume) and flexibility should be part of this contingency plan as well. Supply chain set up to cope with uncertain. NPI sales Setting up the supply chain and balancing between big lot sizes for mature products and initially smaller lots for new products is seen as a big challenge for many companies. The penetration degree of NPI is very relevant to this aspect and has to be monitored thoroughly to be able to set up an effective supply chain. Depending, for example, on the customers' requirements, the (initial) pipeline- fill will largely depend on the end-distribution concept. The set-up is different if the product is shipped to central warehouses or directly to points-of-sales. Also setting the right stock polices largely depends on the customers' ordering policies and furthermore depends on the frequency of replenishment. S&OP in relation to channel loading & follow-up replenishment (ECR Journal, vol. 4, nr. 1, 2004).

The first pipeline fill is often treated as part of the project organization of launching new products. Companies in the food value chain cannot afford to miss out on the often predefined launch moments to retail.

Follow-up replenishments are much more difficult to predict. In this stage responsibilities are subsequently handed over to regular S&OP structures (from project to process). To manage follow-up replenishments effectively, avoiding stock-out situations, supply chain management should have early access to actual sales figures at point-of-sales and monitor forecast accuracy as closely as possible.

Phase-in & phase-out While product life cycles are shortening

and the integral supply chain costs need to be decreased, the balancing of time-to-market/time-to-volume and minimizing risk of obsolete stock is essential. When not managed well it has a direct bottom-line impact on working capital and profitability. Actively managing of the brand's portfolio in the value chain has become a challenging new task in which SCM can bring added value. Earlier understanding of the product-life status of all SKUs is essential to pro-actively avoid out-of-stocks of fast movers and weed out the non/slow movers, avoiding obsoletes. Sourcing A new product can contain new raw materials. These may implicate introducing new sourcing activities that can have considerable lead times. Engaging data between partners in the value chain has proves to be a difficult hurdle to overcome. Especially downstream - towards retailers – information sharing and data gathering is not commonly done. Another risk might be that the R&D department has used raw materials in the design which are almost impossible to source in the volumes required for ramped up production. The right choice of raw materials and suppliers is crucial for the profitability of new products and SCM should play a key role in this process.

Stage 0 Informal Management

Informal practices based on individual experience

Stage 1 Functional Excellence

Excellence within function, but not across function

Stage 2 Project Excellence

Functions aligned around projects foe effective execution from concept to roll-out

Stage 3 Portfolio Excellence

Front and process creates platform leverage, resource capacity balance, and strategic alignment across projects

Stage 4 Collaborative Development Excellence

Project portfolio across and outside the enterprise are balanced and aligned to create seamless customer solutions while leveraging external partners

Managing Across Functions

Managing Across Projects Managing Across Portfolios & Partners



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NPI supporting tools The common tools used to manage the process are : ERP, Spreadsheet, No tools, Workflow, Forecasting, CRM, Other. NPI supporting key performance indicators Fifty-eight per cent of the participating food manufacturing companies indicated to actively use key performance indicators (KPIs) to manage the innovation process. Some of the KPIs that were mentioned are: per cent on time launch; compliance to customer demand; attrition rate (per cent going to next stage in NPI process); payback time; forecast accuracy, specifically for NPIs; per cent sales from NPIs; service level for NPI; per cent obsolete for NPI.

(Master) data availability From preliminary stages of the NPI process ( idea stage) correct and consistent data is of crucial importance. Information about expected sales volume, ordering policies, minimum stock levels, and phase in/out should be (centrally) stored and distributed at an early stage.

New Product Policy Opportunities for Retailers Assuming they’ve made their strategic decisions, store locations and optimized their supply chains, most wholesalers and retailers compete for customer support and loyalty at the level of advertising battles and price wars. One way of adding new value, however, is via product policy. Product policy covers a wide range of areas, from optimizing individual product attributes to the composition of a product line or portfolio. Channel intermediaries can influence product policy in many ways: our focus here is new products. A product is a bundle of attributes or characteristics that have the potential to serve future users or consumers in satisfying a category of immediate or latent demands. While the bundling of attributes or characteristics is mostly seen as an activity performed by producers, it can also be an important field of activity for wholesale or retail organizations ((ECR Journal, vol. 4, nr. 1, 2004).

Influencing product perceptions By influencing product perceptions –

via advertising, the store environment or the perception of the store relative to competing stores and even the segment of customers attracted by a particular outlet - wholesalers and retailers can have a significant influence on product policy without ever touching the product’s objective product characteristics. The retailer’s brand strategy has another important influence on perceptions. A retail

brand may be used on an otherwise objectively unchanged product sold in parallel in other outlets under a different name.

Manufacturers might be interested, particularly if such demand makes use of otherwise idle excess capacity. From the point of view of the customer, retail branding can make very good sense if signals sent by the retail brand reduce a buyer’s uncertainty involved in the buying decision or if it offers a particular benefit, for instance the pride of having bought at a particular store.

Cooperation in New Product Development This now leaves us with the case of cooperation in new product development. This can be of interest to channel intermediaries for various reasons. First, the profits based on the optimal bundle of characteristics as seen from the customer’s point of view may be less than optimal as those seen from the channel’s view. For instance, logistics or handling costs could lead to a different bundle of characteristics. This will happen only if the sales lost due to the divergence from the customer optimal bundle are less than the cost savings at the intermediaries levels. Also, these cost saving might have to be shared with the producer’s since its organization suffers from the loss of sales as well. Since this is not a win-win situation for producers and channel intermediaries, these will hardly ever be invited by producers to cooperation. Only powerful intermediaries might initiate such cooperation (ECR Journal, vol. 4, nr. 1, 2004). Second, a win-win situation might arise from a cooperation that leads to products more attractive to producers, channel intermediaries and customers for win-win-win.

Manufacturers will seek the cooperation not of average customers, but of so-called lead users which are able to voice a demand before the majority of the market discovers it. Similarly, lead retailers or lead wholesalers should be included. Well established lead user research techniques can be used, to find clues on how to identify such intermediaries (Witt, 2006).

For the intermediary to benefit from such participation however, the costs of cooperation must be very low, or else he needs to be reimbursed for his costs. This is not unusual in the phase of product testing, and it should not be unusual in phases of product development that precede the testing phase. Producers’ creativity in reimbursing users for their ideas can certainly be applied to channel intermediaries as well. However, if the one-to-one relationship in the cooperation is



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broadened to a one-to- many or to a many-to-many relationship, conflicts are likely to arise.

But as consumer markets ease out of their high-growth phase and begin to mature, pressures appear to be mounting. On the one hand, local brands and retailers are re-emerging to become more competitive with multinationals. And although consumer incomes and appetite continue to expand, there is still a desire and expectation for 'everyday' low prices, which is putting pressure on margins for the foreseeable future. As retailers across the region strive to meet the increasing expectations of consumers, manufacturers and retailers are expected to offer more and bigger discounts and increased promotional activity.

Nevertheless, the market is still evolving and this means there are still many opportunities. Although the hypermarket format is starting to how signs of saturation and traditional formats are languishing, important segments are just starting to get off the ground. These include convenience, specialty and healthcare formats. This is expected to deliver a second wave of growth for both retailers and suppliers. At the same time, consumers will be spending more as incomes rise and they will become increasingly willing to trade up as habits change and the inevitable tide of the consumer lifestyle continues to sweep across the region. As the market continues to evolve, a new set of challenges and opportunities are presenting themselves: Availability - Being a partner in the supply chain will move well beyond price performance. With growing assortment comes shrinking shelf space. This-will put pressure on suppliers to be quicker and more flexible. Collaboration - Leveraging existing best practice while developing new ways of working together will be essential for achieving profitable growth. One-sided cost- cutting exercises will cease to be value adding for the extended supply chain over the longer term. Distribution - As retailers continue to leverage their scale, modem logistic infrastructure will become increasingly centralized. Suppliers will have to adjust, implying higher returns from investments in logistics and value-added providers versus traditional distributors. Innovation - While product life cycles continue to shrink across consumer segments, niche players are beginning to fill the gaps in the market and local brands are making a companies are increasingly thinking and acting locally. Value - Current market conditions are starting to favor local and regional brands as restructuring has improved their quality and prices remain low, and private label brands

grow in popularity, particularly in the food and beverage sector.

Retailers as Product Developers Commonly accepted product success factors include: 1. Relative perceived benefit of the innovativeproduct to the consumer or user; 2. Compatibility of the innovative product withvalues, experiences, wants of potential users or consumers; 3. Complexity reduction. It’s easy tounderstand and use the innovation; 4. Experimental use. It’s easy to try out theinnovation and learn about its promised benefits; 5. High visibility of the innovation, includinghigh levels of word-of-mouth communication. Retailers can do a lot to new products that they choose to offer by changing products’ original bundles of characteristics in many ways (ECR Journal, vol. 4, nr. 1, 2004). The following services are particularly important: 1. Information services, providing moreinformation than that given by the manufacturer on a new product, for instance by personal consultation; 2. Risk-reduction: reducing the perceived riskof buying an innovative product by extending a warranty, for example; 3. Home services: e.g. home delivery or homeinstallation; 4. Order services: e.g. offering variousalternatives for ordering items; 5. Payment services: e.g. offering alternativemeans of payment, discounts; 6. Purchase facilitation, which makes it easieror more pleasant to shop (ECR Journal, vol. 4, nr. 1, 2004). The New Product Introduction strategy provides the opportunity for distributor and consumer involvement much earlier in the process. As with the tree other Efficient Consumer Response strategies, a prerequisite to gain much of the benefits is that distributor and supplier/broker are working together as allies whit a mutual commitment to focus on what the two parties can do together to provide greater consumer value. More products will get tested but at a much lower cost per test, enabling suppliers to put more resources into probable winners and less into weaker products. A typical joint project is shown in Figure 3. The financial benefits to suppliers will vary widely depending on the category and on the supplier’s level of spending on new product development. For some dry grocery suppliers the potential cost benefits are as high as 2-3% of sales, while for others they will be below 1% of sales.



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The consumer is the final, but by no means the least, beneficiary of the New Product Introduction Strategy. Consumers will see

more genuinely new and innovative products and less me-too products of marginal benefit.

Figure 4. Typical joint project

Source: Kurt Salmon Associates, 1993

Thousands of new items are introduced each year as companies seek ways to gain competitive advantage and grow. If we look at the different clusters defined in the model (Figure 4), failure is particularly common among the me-toos – the largest group of new products. But even among the more innovative product introductions, the failure rate is 47%. EPI project scope and methodology The six project level categories span high, medium and low degrees of innovation. Classically innovative products are defined as breakthrough products that appear to the consumer to bring true innovation to a category, or alternatively create a new category. Equity transfer products are introduced by an established name or franchise, are new to the category, but are recognized by the customer.

Line extensions are the first medium innovation category. These are a new version of a product within the same category but feature a new or slightly different flavor, form or size. Me-too products are also a medium innovation classification. They are essentially the same as existing products within the category, and do not deliver any new value proposition to the consumer. Me-toos include “clones” and store brand items. The first of the low innovation categories are seasonal/ temporary products.

These are products with a short life cycle. They are either introduced for a specific date event, reappear every season or enjoy the majority of their sales at certain periods (but have a shelf presence throughout the year). The final category is conversion/ substitute. These are replacement products for those already marketed (Ernst & Young/ACNielsen, 1999) include “clones” and store brand items.

Money being lost on new product introductions The cost of these failures is high. We distinguish two types:

• “Minimum costs”: this is money that must bespent on any product introduction. Regardless of the type of product or size of company, certain minimum activities will have to be performed. Most costs incurred by retailers result from these minimum activities, e.g., discussions with manufacturers about pricing and in-store activities.“Additional costs”: On top of these minimum activities, companies may choose to invest in additional activities. Many of the costs thus incurred involve money spent on communicating to the consumer, including advertising and promotion. For manufacturers such costs normally represent a major share of the total cost in new product introduction



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Figure 5. The Innovation Based Clustering Model

Source: Ernst & Young/AC Nielson, 1999

The long-term value argument We have seen that there are considerable costs associated with failed new products introductions. The positive attraction of new product introductions in the short term is of course that they can increase sales volume. But, while this is desirable, the ultimate goal is to build long-term brand and/or category value. By introducing innovative products efficiently, companies increase consumer satisfaction, which ultimately helps to build brand and

category equity. These last goals are less tangible than volume, but they are vital factors in creating sustainable competitive advantage. This is what makes new product introductions central to any company’s strategy for long-term survival and business growth (Ernst & Young/AC Nielson, 1999).

Figure 6. Activities linked to new product introductions - example

Source: EPI, 1999

The components of brand and category value Long-term brand and category value is strongly inter-related with consumer value, retailer value and manufacturer value. This is

one of the fundamental premises of ECR. Taking new product introductions as an example: it is crucial to reach the market in a fast and effective way in order to win battle for the customer and offer consumer value.



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Opportunities to develop value-creating relationships Given all the arguments in favor of new product introductions, how can greater collaboration help deliver the benefits? Today, some manufacturers and retailers have already started to work more closely together to improve the process of new product introductions, but there is still some way to go. Understandably, manufacturers in general are very much focused on brand value – especially being fist on market and achieving short-term results - while retailers tend to put their energy into category value. With limited alignment between the two strategies, there is a risk that they operate counter-productively and fail to maximize consumer value. There are many reasons, apart from traditional manufacturer-retailer rivalry, for the inability or reluctance to share information and work together. These include organizational, cultural and technological factors. Further, co-operation between retailers and manufacturers depends on a degree of trust which is hard to build up, especially when many retailers are playing the part of manufacturers by launching their own private label products. Global Commerce Initiative

Process scenarios

1. The failure rate for new products is high andthe group believes that improved information sharing would reduce this failure rate substantially for the benefit of all parties. 2. The current effort involved in launching newproducts is considerable and represents a lot of wasted effort and operational inefficiency. Many product launches are not supported appropriately, with many information gaps across the value chain and often a lack of coordinated support for new product launches across all parties in the supply chain. 3. Failed new products contribute to consumerskepticism that can damage the industry over the long term. 4. The new product development andintroduction scenario covers an end-to-end process that involves the entire value chain. Figure 6 is a high-level overview of the new product development and introduction scenario. For each step in the six-step process, the we looked at these issues: This covers both data and information that is available today and future data and information sources that the group envisioned being available by 2018.

Figure 7. Brand/category value generation

Who generates the data? Where is it held? How could it be shared? • What is the situation today? Is this datashared today? • What standards currently exist for thedifferent data sources? Which standards could

support large scale sharing of data? Which data sources do not yet have standards and need them to facilitate data sharing (GCI & IBM, 2009).



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Figure 8. Process for developing and planning new products

Source: GCI Information Sharing Report

Step 1: Research consumer needs, technology development and business environment Raw material and packaging suppliers might bring research to consumer goods companies for their consideration, but the potential exists to exploit information sources from across the value chain.

Step 2: Develop product concept Developing the product concept is a creative and iterative process in which a product concept is created that fulfills the unmet consumer need identified in Step 1. Failing to take advantage of ideas from multiple sources can result in a product concept that is insufficiently robust or fails to meet consumer requirements.

Step 3: Develop product At this step , the product concept is developed into a proposal for a physical product that can be produced. The product must be tested with all stakeholders and refined to the point where it can be launched with a good chance of success.

Step 4: Plan launch Once a robust product is created, we need to carry out a detailed plan of the product launch. A successful launch requires the collaboration all parties in the value chain as well as external agencies. This step (Figure 6) requires the extensive exchange of planning information. That information is very often exchanged in today’s trading relationships, but there are few

standards governing the exchange process and launch plans vary greatly.

Step 5: Launch and replenish In this step the initial shipment is sent to retailers and the product is prepared for launch. No matter how detailed the plans, there is always an element of guesswork regarding how the product will sell. Therefore, sales levels must be quickly identified and forecasts and replenishment plans updated. While retailers routinely place replenishment orders there is no agreed-upon standard or process for exchanging point-of-sale (POS) data . Step 6: Evaluate Without an evaluation, we cannot tell what worked well and what did not. We would not be able to improve the next launch. Evaluation must be based on data collected by all parties and shared. Again, standards exist for the identification of the product and for the product master data. But there is no standard for the extensive set of information required to evaluate the success of a product launch.

Sharing information more readily and freely means the best way to manage increasing complexity is through openness and transparency. However, it requires that businesses are connected through common goals, common measures (e.g., key performance indicators (KPIs) that measure shopper satisfaction, not simply brand benefit) and a common language.



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Figure 9. Develop the product

Source: GCI Information Sharing Report

Designing organizational structures and work processes: • around consumer needs and drivers;• Building new knowledge, skill and capabilitysets to develop insights into shoppers’ needs and wants; • Building new attitudes, beliefs and behaviorsoriented toward joint development; • “You get what you measure. Transformpeople performance incentives that reward collaborating with vertical trading partners and long-term planning (for example, direct linkage

to KPIs and a balance of long- and short-term focus). More data is available at every stage of the chain. Those companies that learn how to use that data, how to turn it into information by shaping it, organizing it, and putting it into its business context, will derive new insights that will help them better meet consumers’ needs. We must have a clear understanding of the concepts behind “Information Sharing.” (GCI & IBM, 2009)

Figure 10. Supply-Chain Operations Reference-model (SCOR) – Processes

Source: Supply Chain Council, 2003

Supp

liers

Cus

tom

ers

Source S1Source Stocked

S2 Source MTO

S3 Source ETO

Make

M1 Make-to-Stock

M2 Make-to-Order

M3 Engineer-to-Order

Deliver D1 Delivered Stocked

D2 Delivered MTO

D3 Deliver ETO Products

D3 Deliver Retail

Return Deliver Return Source

Enable

Plan P1 Plan Supply Chain Plan Source P3 Plan Make P4 Plan P5 Plan



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NPI Process Management Project Project: A project is a temporary endeavor, having a defined beginning and end (usually constrained by date, but can be by funding or deliverables), undertaken to meet unique goals and objectives, usually to bring about beneficial change or added value. The temporary nature of projects stands in contrast to business as usual (or operations), which are repetitive, permanent or semi-permanent functional work to produce products or services. In practice, the management of these two systems is often found to be quite different, and as such requires the development of distinct technical skills and the adoption of separate management. Process management is the application of knowledge, skills, tools, techniques and systems to define, visualize, measure, control, report and improve processes with the goal to meet customer requirements profitably. In project management, process management is the use of a repeatable process to improve the outcome of the project.ISO 9001 promotes the adoption of a process approach when developing, implementing and improving the effectiveness of a quality management system, to enhance customer satisfaction by meeting customer requirements. In today’s competitive, tight-margin business world, organizations have to move and

respond quickly to opportunity. Many companies have moved from a functional environment (that is, organization by function) to an organization or management by projects. An organization that uses projects to drive the company forward is using the Management by projects approach. These project-centric entities could manage any level of their work as a project. These organizations, however, apply general business skills to each project to determine their value, efficiency and, ultimately, their return of investment (Phillips, 2004).

The Work Breakdown Structure (WBS) is an organized collection of the project-deliverable components to be created by project work. The WBS will offer major input into planning, estimating, and scheduling processes throughout the project (Project Management Institute, 1997).

The Gantt chart (or bar chart) is a graphic display of schedule-related information. In the typical bar chart, activities or other project elements are listed down the left side of the chart, dates are shown across the top, and activity durations are shown as date-placed horizontal bars (Project Management Manual, 1997).

Figure 11. Work Breakdown Structure of a NPI



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Figure 12. Gantt Chart

Figure 13. Benchmarking of a NPI process

0% 25% 50% 75% 100%

0 0S3:1 Identify Sources or Supply 0S3:2 Select Final Supplier(s) and Negociate 0S3:4 Receive Product 0S3:5 Verify Product 0S3:6 Transfer Product 0S3:7 Authorize Supplier Payment 0

0 0M3:1 Finalize Engineering 0M3:2 Schedule Production Activities 0M3:3 Issue Product 0M3:4 Produce and Test 0M3:5 Package 0M3:6 Stage Product 0M3:7 Release Product to Deliver 0

0 0D3:1 Obtain & Respond to RFP/RFQ 0D3:2 Negociate & Receive Contract 0D3:3 Enter, Order, Commit Resources & Launch Program 0D3:4 Schedule Installation 0D3:5 Plan and Build Loads and Shipments 0D3:6 Route Shipments & Select Carrier 0D3:7 Pick Staged Product 0D3:8 Load Vehicle, Generate Ship Documents, Verify Credit & Ship Product 0D3:9 Receive & Verify Product at Customer Site 0D3:10 Test and Install Product 0D3:11 Invoice 0

TOTAL 0 0

M3: Engineer-to-Order

D3: Deliver Engineer-to-Order Product

Nivel de maturitate

S3: Source Engineer-to-Order Product

Categoria de procese Grupa de proceseNivelul de

importanţă al activităţii majore

în cadr l

Ierarhizare

Conclusions

A responsive forecasting planning process is a key success factor for profitable new product introductions (NPIs). The demand uncertainty

of NPIs presents challenges in managing both time-to-market and time-to- volume but is at the same time critical for the bottom line result. This puts a great deal of pressure on the ability of companies to align their processes towards



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the launch of new products. However, collaboration on NPIs with suppliers and customers is no common practice. Moreover, supply chain management is not always involved in the earlier stages of the innovation process and tools to support the NPI process are only limitedly available and often unsatisfactory. Furthermore, having up-to-date NPI data available is already difficult within companies but is even more of a hurdle to overcome between partners. All guiding principles to challenge the pitfalls are described in this paper, which will help to provide companies in the FMCG industry with a well-stocked survival kit of profitable new product introductions. the present paper reveals a number of factors that gives a higher score of excellence: - A more assertive management involvement; - A more efficient use of resources in order to obtain information (benchmarking studies, and comparison with competitors achievements, reference projects); - An effective communication to all the persons involved for a better understanding of the objectives; - Creating an atmosphere within the team in order to stimulate constructive criticism; - Better training, including a project manager; - Better understanding of customer needs, the more efficient feed-back come from the final customers; - Defining an employee incentive scheme; - Assess the degree of achieving the objectives - Using project management instruments to launch a product for achiving excellence in the perspective of cost, quality, time

References

Markides, C. Constantinos, Game-Changing Strategies, Jossey-Bass, San Francisco, 2008. Schmidt, Regina and Co., „Organizing innovation – factors that drive success”, Executive Outlook, Volume 6, Number 4, December, Bruxelles, 2006. Koen & co. , Fuzzy front end: effective methods, tools, and techniques. ECR - Efficient consumer response - , Enhancing Consumer value in the grocery industry, Kurt Salmon Associates, Inc., 1993. Cooper Robert, Effective Gating – make product innovation more productive by using gates with teeth, Product development institute Inc., 2009. Efficient product introduction, the development of value-creating relationships, ECR Europe, Ernst & Young, AC Nielsen, 1999. Eduard Versteijnen and co., The food industry’s survival kit, excutive outlook, nr 1, 2007. New Product Policy Opportunities for Retailer, ECR Journal, vol. 4, nr. 1, 2004. Global Commerce Initiative Information Sharing Report, GCI & IBM, 2009. Supply Chain Operations reference-model, Supply Chain Council, 2003. Joseph Phillips, PMO Project Mangement Professional Study Guide, McGraw-hill, 2004. Practice standard for Work Breakdown Structures, Project Management Institute, 2001. Project Management Manual, Harvard business school, Boston, 1997. Witt, Christian, „Interoganizational New Product Launch Management”, Dissertation of the University of St. Gallen, 2006. Crawford Merle, Anthony Di Benedetto, New Products Management, 9th edition, McGraw Hill international Edition, 2008.
